Taxing ISA savings - where will this drive to make us poorer end?

[Cattreesea]

I was reading this morning that Reeves is thinking about removing the tax exemption for ISA savings.

I voted Labour and I just can't understand the direction they have chosen to take. Targeting pensioner, disabled people, now savers?

Surely people being encouraged to save for a rainy day through ISA being tax free up to a certain amount is a good thing.

I live in my own and I use my ISA to save religiously every month for house repairs or in case I lose my job.

No idea why the chancellor think that this is where she should get more money rather than finally going after wealthy corporations and individuals who are not paying their fair share of tax through clever accounting...

What else are they going to try taxing? the air we breathe?

But it hasn't happened yet OP. Just like the reduction of tax free pension contributions didn't happen but were reported as done and dusted.

You don't know that is what the Chancellor thinks. So until, if, it happens you are choosing to make assumptions on heresay.

I hope she doesn't. For many retired people, it's used to bump up their pension:

Martin Lewis said this yesterday:

'A lot of people are asking me "what's the news with ISAs thresholds, are they being cut?"

The answer is there is no news, there's lots of speculation written up as news, but absolutely zilch has been announced. In fact I doubt anything has been decided yet (though it is being discussed) ...

To those asking should I take money out of ISAs. If there are changes it will almost certainly (nothings 100%) be on how much you can contribute in future. It would be very unlikely to impact any money already in cash ISAs. So don't do any panic moves, just keep going, nothing has happened'.

Reeves isn't think about it, the move was suggested by various financial bodies in the city. There is no evidence it will happen.

I don't agree with this policy and hate labour. But if this goes through it won't hurt people like you saving smallish amounts in an ISA for a rainy day (I assumes mall amounts).

If you're a basic rate tax payer you can earn £1000 a year in interest before needing to worry about tax £500 if you're a higher rate tax payer. Not many people earn this much in interest even with their ISA. However there are people who've been saving the maximum in ISA's for years and have a few hundred thousand sitting there. Those are the targets.

It's probably an idea being floated by civil servants / govt to see how awful the public finds it. If it's going to lose them shedloads of votes it probably won't happen.
Was it labour who brought in ISAs in the first place to encourage people to save? Not necessarily but if it was their creature in the first place that might make a difference.

'@frozendaisy · Today 08:42

But it hasn't happened yet OP. Just like the reduction of tax free pension contributions didn't happen but were reported as done and dusted.
You don't know that is what the Chancellor thinks. So until, if, it happens you are choosing to make assumptions on heresay.'

It is a very common way to test a potential changes/new policies to see how people would react though ('leak' a possibility to the press and check how it lands).

It seems that the 'hearsay' has resulted in banks commenting on this https://www.theguardian.com/money/2025/feb/12/nationwide-warns-reeves-against-cutting-tax-breaks-on-cash-isas so it is not just me making 'assumptions'...

I’ll believe it when I see it.

I think it will come. The EU is considering similar moves to force savers into the finance markets as they don't like money just sitting in banks.

Both Von Der Layen (EU President) and Lagarde (ECB Bank) commented on it at the recent WEF Davos meeting.

Coin Bureau did a good video on it, timestamped to the relevant section:

I just want them to tax billionaires with offshore accounts. That is all.

I know it’s better when people spend money than have it sitting in banks.

with interest rates so low there’s little incentive to save.
savings ultimately, are a good thing, and our reliance on credit is not.

At 5% interest, a savings pot of £25k would get over £1000 interest a year. Its a large amount but not excessive.

Having said that, if its a way to encourage normal people to save, i dont think the limit of £20k a year tax free for life is fair - most people on average salaries arent saving this amount regularly. It makes sense to drop the maximum yearly tax free allowance.

The problem with encouraging people away from saving into stocks and shares is how risky it can be, especially for those with small savings. No-one wants to get to 70 and see their life savings half overnight.

Was it labour who brought in ISAs in the first place to encourage people to save?

Yes, replacing the earlier TESSAs and PEPs iirc, brought in under previous conservative governments.

well I hope everyone who voted for them are happy now. We did warm people what would happen under Labour but now people are finding out the hard way. Hopefully we won’t see another Labour government for a long long time after this shambles.

The newspapers are endlessly fearmongering.

Cash ISAs are pointless anyway IMO.

Put your money in a stocks and shares ISA.

Stocks are shares are risky and long term. They are only for people who are comfortabe risking their capital.

If the government want to encourage people down this route, they'll need to be prepared to deal with angry voters who may see their hard earned savings fall by election time.

Stocks are shares are risky and long term. They are only for people who are comfortabe risking their capital.

S&s are risky in the short term. And trying to beat the market by stock picking is very unlikely. Long term investments in low charge index trackers are a different matter.

Putting all your eggs in one basket is generally a bad idea, whichever basket that is!

Leaving money in a cash ISA is also risky as when inflation is high it really erodes the value.

You say this but we all thought they'd go after the billionaires and big business before they put VAT onto parents paying for private schooling because the state sector is in such a mess. They do what they want quickly so the average person can't escape it while they're letting billionaires continue to not pay tax with non dom status.

Long term can be short term if something happens and you need access to your own money.

They want you in debt making money for the banks. That's how the whole system seems to work.

If you're a basic rate tax payer you can earn £1000 a year in interest before needing to worry about tax £500 if you're a higher rate tax payer. Not many people earn this much in interest even with their ISA

You don't pay income tax on an ISA, that's the whole point.

Thing is that ISAs have lost their way. Initially the limits were pretty low, so they were ideal for small savers and to get people into the habit of saving.

Over the years, the annual limits have increased enormously.

Over the years, there have also been new "tax free" allowances for interest and the personal savings account, meaning that someone, with say a state pension of £12k can still earn around £6k of interest and still pay no tax, even if the savings weren't in an ISA.

We're now left with very wealthy people (who can afford the tax) shovelling money into ISAs every year to avoid paying interest, and there are plenty of people with huge amounts sat in ISA (several hundred thousands) who should be paying tax due to the amount of savings they have, but aren't.

It's the latter we need to make changes to address, not the "starters" nor low savers. No one should have half a million in a bank account or stocks/shares and not be paying tax on the interest/dividends they get!

Stupid question maybe, but how is it better if people spend money instead of saving it, then having pissed it all up the wall, depend on the state in 30, 40 or 50 years' time to pick up the tab for care, housing, benefits instead of pension etc???
It's absolutely a stupid and short-sighted policy.

I agree with this. Someone putting £50 a month into an ISA shouldn't be taxed. The ISA limit should be lowered instead and tax those saving above it, like they used to back when I worked in banking many years ago and people had to open taxable CIPs if they were over the annual ISA limit.

A bit of a simplistic statement. When inflation is higher, then interest rates are higher too. It also depends on what your saving for. If your savings are to buy a house, then it's house price inflation that matters, not general inflation. If you're saving for a new flat screen TV, then the price will probably reduce over time rather than increase, i.e. negative inflation as some things get cheaper over time.

Have interest rates on a cash ISA ever matched inflation? Not mine certainly.